Iran strikes to boost oil prices, but maybe not for long, analysts say

DUBAI, United Arab Emirates — Iran’s attack on Israel has injected fresh anxiety into oil markets already roiled by regional tensions, but analysts stress that it is unclear if a durable price spike is imminent.

Saturday’s overnight drone and missile barrage was Iran’s first-ever direct assault on Israeli territory.

Tehran says it was triggered by the April 1 air strike on its consulate building in the Syrian capital that was widely blamed on Israel.

The Iranian mission to the United Nations warned on X of “considerably more severe” actions should Israel “make another mistake”, raising the prospect of intensifying violence in the days ahead.

READ: Iran launches unprecedented strikes on Israel, risking wider conflict

Oil prices had already jumped in the build-up to the Iranian attack, with benchmark Brent North Sea Crude closing on Friday at $90.45 per barrel.

Prices are expected to climb further when markets reopen on Monday, perhaps as high as $95 per barrel, though it is too soon to say whether they will stay elevated, said Kuwaiti oil expert Kamel al-Harami.

“The picture is not clear about the future. We do not know if and how Israel will respond and whether Iran will also resort to stopping oil supplies as a response,” he said.

The Islamic Republic was the world’s seventh-largest crude producer in 2022, and has the third-largest proven oil reserves behind Venezuela and Saudi Arabia, according to the United States Energy Information Administration.

Iran also has a range of ways to wreak havoc with markets, including disrupting maritime traffic through the Strait of Hormuz and pressuring countries such as Iraq to cut supply, Harami said.

READ: Global oil demand seen to grow by 1.9 million bpd in 2024

“There are several scenarios… The fear is that Iran will stop exporting oil or attack oil facilities,” Harami said.

Red Sea woes

The fallout from the six-month-old war between Israel and Hamas in Gaza — along with other geopolitical hotspots like Ukraine — has already driven up oil prices in recent months.

Since November Huthi rebels in Yemen have carried out a campaign of strikes on vessels in the Red Sea.

They say this is in solidarity with Palestinians in Gaza, where Israeli military operations have killed at least 33,729 people, mostly women and children, according to the territory’s Hamas-run health ministry.

READ: Oil up as Middle East tensions persist, demand concerns cap gains

The war began with Hamas’s unprecedented October 7 attack on southern Israel that resulted in the deaths of 1,170 people, mostly civilians, according to an AFP tally based on Israeli figures.

In January, US and British forces began retaliatory strikes against the Huthis, exacerbating fears about oil flows from Gulf producers.

Widespread expectations that Iran would target Israel in response to the April 1 Damascus strike on its consulate already account for some of the oil price rise seen in recent weeks, meaning any further impact will be “limited and short-lived”, said Texas-based oil expert Anas al-Hajji.

Ole Hansen, head of commodity strategy at Saxo Bank, also said crude prices “already included a risk premium” before Iran unleashed its missiles and drones, almost all of which were intercepted before reaching Israel, Israel’s army said.

Major disruption ‘unlikely’

Further price increases will almost exclusively depend “on developments near Iran around the Strait of Hormuz” which connects the Gulf with the Indian Ocean, Hansen said.

Iranian state media reported on Saturday that Iran’s Revolutionary Guards seized a container ship “related to the Zionist regime (Israel)” near the strait, through which more than a fifth of global oil consumption passes each year, according to the US Energy Information Administration.

So far, though, there has been no major disruption to oil traffic and supply, a fact analysts pointed to in explaining why they thought that even if prices jump on Monday they will not necessarily stay up for long.

“Fears of rising tensions in the Middle East can make oil prices go up in the short term,” said Ellen Wald, energy analyst and author of a book on the history of  Saudi oil giant Aramco.

“But unless something happens that halts the flow of oil out of the Persian Gulf for a significant timeframe, which is highly unlikely, it’s not going to be economically devastating.”

Scenarios that could produce a long-term price boost — such as an Israeli attack on Iran’s oil-producing or oil-exporting infrastructure resulting in major outages — remain “extremely unlikely”, she said.